Francisco Alvarez-Demalde on Alternatives: Liquidity is the Key Issue, Not Volatility

The State of Alternative Investments

• 💡 The alternative investments industry has grown significantly over the last 15 years, becoming more institutionalized with professional management and value creation processes.
• ⚠️ While the industry has not faced a major crisis in the last decade, the point that private investments haven't been fully tested by a downturn is valid.

Opportunities in Private Credit and Technology

• 🚀 Private credit may benefit from economic downturns due to downside protection and favorable lending terms, especially as big lenders become more hesitant.
• 📈 Technology investments, particularly software and software-enabled companies, are seen as uncorrelated to macro volatility due to driving secular trends.

The Primary Challenge: Liquidity

• 📌 The biggest issue in accessing alternative markets is liquidity, not macroeconomic volatility.
• ⏳ Alternative assets are inherently illiquid with long durations, making it challenging to provide liquidity when investors need it.
• 🧩 Matching the liquidity horizon of investors with the assets is crucial for the industry's evolution.

Access and Opportunity in Private Markets

• 🎯 In technology, there are approximately 700 public companies, with only about 100 being software companies.
• 🌟 In contrast, the private markets in technology represent a target market of 20,000 companies, offering a much broader long-tail of opportunities.
• 💰 While access is expanding, it's important to consider the investor's profile and the percentage of exposure when investing in alternatives.